This paper explores the mutual reference behavior of local governments in Japan. The Japanese public education system was decentralized in the previous decade. For example, actual fixed number of classes was relaxed in 2001 and 2003. This relaxation of regulations caused an increase in the expenditure of local governments on Japanese public education. After national regulation relaxed under the condition of children decline, local governments tended to reference the decision making of other local governments. Consequently, this paper analyzed the mutual reference behavior in Japanese public education. In addition, it inferred that population aging had some impact on public education expenditure. This paper provides a tentative conclusion on the relaxation of regulations on education. The expenditure of local governments on public education is positively affected by the expenditure of other local governments. Local governments should increase expenditure on public education if other local governments do so. In addition, the decision making of local governments is affected by not only neighboring governments but also all other governments. If this decision making were affected only by neighborhood, the effect of mutual reference behaviors would probably be small. In addition, this paper also shows that local governments may decrease public education expenditure, considering the progressive aging of society.
